IEEFA Asia Newsletter

The ongoing upheaval in global energy markets stemming from the Middle East conflict has reinforced energy security concerns across Asia and will likely shape energy markets and investment decisions for years to come. Asian economies also face significant structural challenges, including institutional barriers, fiscal pressures from fossil fuel subsidies, and investment gaps in energy infrastructure. Addressing these constraints is essential to ensure that the region’s energy systems become more resilient and sustainable.

This month, our research analyzes the institutional and financial obstacles to the energy transition across the region and identifies solutions to unlock renewable energy deployment and infrastructure investment.

Key findings include: 

• Japan’s renewable energy pipeline is expanding, but the conversion of projects from application to physical grid connection remains weak. Of the approximately 317 gigawatts (GW) of wind, solar, and storage capacity under study as of December 2025, only around 87GW (27%) had been physically connected to the grid. The current framework places significant upgrade cost risk on developers and relies heavily on first-come, first-served queue management, limiting prioritization for transmission-dependent technologies.

• Fossil fuel subsidies in Southeast Asia reached USD353.1 billion (8.1% of gross domestic product) in 2024. Elevated oil prices have forced governments to contain retail fuel prices, straining fiscal budgets and dedicated stabilization funds. Redirecting resources toward targeted support measures, expanding access to affordable clean energy, and investing in energy-efficient technologies can reduce fiscal pressures while protecting vulnerable groups.

• Indonesia’s electricity transmission is financed through the national electricity utility PLN’s consolidated balance sheet, blending its low-risk profile with fuel price volatility, foreign exchange exposure, and subsidy risk, inflating costs and creating bottlenecks. Establishing a separate PLN transmission subholding through corporate restructuring and financial ring-fencing within a state-owned framework would enable cost recovery through regulated tariffs, unlock long-term infrastructure finance, and reduce reliance on the national budget.

• Despite declining oil demand in Japan, approximately 94% of the country’s oil imports are from the Middle East, costing over JPY9 billion (USD57.7 million) annually. Reducing the transportation sector’s oil dependence by accelerating electric vehicle (EV) adoption could insulate Japan from supply shocks. Recommended policy measures include reallocating a portion of gasoline subsidies to boost EV demand, incentivizing automotive manufacturers to scale up EV battery production, and expanding the used EV market.

• Utility-scale solar has reached 1.5GW in Cambodia and already exceeds the 2030 and 2035 targets under the Power Development Master Plan (PDP) and supplies 10% of the country’s electricity mix. However, rooftop solar deployment remains constrained by grid stability concerns and impacts on the state-owned utility. Export-oriented manufacturers cite low-cost rooftop solar access as a necessity for competitiveness, yet policy barriers continue to limit adoption.

Warm regards,

Paige Nguyen